By Daniel Borenstein, Staff Columnist
Posted: 07/24/2015 – 04:00:00 PM PDT
Although public employee pension plans across California are badly underfunded, union leaders have expressed little concern about the security of workers’ retirement pay.
If anything, many dismiss worries about pension fund shortfalls and advocate accounting practices that could make the problems worse. In other words, they seemingly act contrary to the long-term interests of their members.
It’s not that union leaders are acting irrationally. Quite the contrary. They are behaving quite rationally under the incentive structure we’ve created. It’s the structure that must be changed.
Sarah Anzia, assistant professor at UC Berkeley’s Goldman School of Public Policy, studies the politics of pensions and has developed theories about labor leaders’ behavior.
One might assume that government employees and their unions would want to ensure that pension contributions are adequate, Anzia noted during a panel discussion last week at the school. “These are their pensions. They should want to make sure that funds are sufficient to pay benefits.”
But they don’t. Anzia says that’s because union leaders are driven by political considerations rather than actuarial calculations.
In California, unions are a very influential force. So Anzia’s insights about their behavior help explain why we face today’s seemingly insoluble shortfalls and should guide thinking as we look to fix the system.
As a key example, consider the issue of the assumed rate of return on investments. Every public pension board grapples with this. The higher the rate, the lower the contributions required now.
But lower contributions now mean there’s less chance that there will be sufficient funds later to pay the promised pension benefits. And when shortfalls arise, that debt is made up with higher payments down the line.
Union leaders usually argue for keeping the assumed rate of return higher and oppose moves to lower it. Why would union leaders oppose efforts to ensure pension plans are fully funded? Because, as Anzia explains, it’s not in their best interest:
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